Task force for moratorium on cooperative registration and service expansionThe International Monetary Fund says a lack of reliable data on these institutions makes it difficult to assess the level and severity of their risk to the overall financial sector.
A cooperative sector reform task force formed by the government has suggested a temporary moratorium on the registration of new cooperatives and their expansion until other measures to stabilise the sector are implemented.
According to the Financial Sector Stability Review Report of the International Monetary Fund released in early October, there are an estimated 30,879 cooperatives in the country. The number includes 14,484 savings and credit cooperatives.
As several savings and credit cooperatives are failing to pay back depositors, the government formed the task force headed by Jaykant Raut, a member of the National Planning Commission, to study the situation and recommend measures to correct the anomalies.
“One of the recommendations is a temporary moratorium on the registration of new cooperatives and the working area expansion for the existing ones,” said Ganesh Prasad Bhatta, spokesperson for the Ministry of Land Management, Cooperatives and Poverty Alleviation.
The ministry received a report of the task force in early October. Bhatta said that the ministry had formed a committee headed by Joint-secretary Krishna Prasad Sapkota to plan the implementation of the recommendations by the Raut-led task force for the short, medium and long terms. The ministry has yet to make the report public.
“We will take a proposal to the Cabinet for immediate approval and draft a bill to implement the recommendations,” said Bhatta.
Cooperatives, particularly the savings and credit ones, are struggling to pay back the depositors, giving rise to fears about the safety of their money.
In the absence of strong laws and rules and regulatory agencies, chances are growing of cooperative promoters running away with the deposits.
After many fled, the victims are struggling to reclaim their money. Cooperative victims staged a sit-in at Maitighar, Kathmandu, for over two months since June, pleading for help in getting their savings back.
Hundreds of people who deposited their hard-earned cash in cooperatives are now in trouble as their operators have gone out of contact. Many of those who are in contact say that they can’t give back the deposits immediately.
The government signed a seven-point agreement with protesting members in early August. The deal pledges measures to amend the laws to address the situation.
As per the deal signed in the presence of Cooperative Minister Ranjita Shrestha, the ministry will work on setting up the Deposit and Credit Guarantee Fund to secure the savings of cooperative depositors.
The ministry also agreed to proceed with establishing a credit information centre and a debt recovery tribunal to make the debt recovery process for cooperatives quick and effective.
All these agreements have also been included in the recommendations of a report prepared by the Raut-led task force. “Besides, the formation of the cooperatives debt recovery tribunal has also been recommended,” said Bhatta.
Such a tribunal helps recover the loans from the defaulting borrowers. There is already a tribunal to help banks and financial institutions recover loans as licensed by the Nepal Rastra Bank.
According to Bhatta, the task force has also called for intensive monitoring of saving and credit cooperatives and recovering the deposits even by selling off assets of the cooperative promoters.
One of the reasons behind cooperatives’ failure to return deposits is the government stalling the transactions of the real estate over the past year, according to experts. Property ownership transfer has been relaxed only recently.
In an interview with the Post in June, Gauri Bahadur Karki, former chairperson of the Special Court who headed a commission formed in 2013 to look into troubled saving and credit cooperatives, said that the cooperatives investing deposits in real estate had caused the current crisis.
“After the government halted land plotting last year, many cooperatives failed to sell their property, which led to their failure to pay the promised interest. The depositors who could not recover their money staged protests,” Karki said in the interview.
“The cooperatives continue to invest in land and pay interest after generating profits from selling such land. Otherwise, they would not be able to offer such a high interest rate on deposits.”
Karki-led team had collected around 13,000 complaints from depositors of troubled cooperatives, a majority of them related to the Oriental Cooperative, run by the disgraced Sudhir Basnet and Rajendra Shakya, promoter of Guna Cooperative. According to Karki, the root cause of the problem in cooperatives was experienced a decade ago too.
According to the IMF report, cooperatives now account for seven percent of the total financial sector lending. As the cooperative sector is poorly regulated and information on the organisations’ financial health is scare, assessing the severity of the risk has been difficult.
“The lack of reliable data on these institutions makes it difficult to assess the level and severity of the risk they pose to the [country’s] overall financial stability due to their linkage to banks and financial institutions,” the report said. “There is evidence of serious governance and liquidity issues as well.”
According to the IMF Report, the savings and credit cooperatives are relatively large providers of financial services in terms of customers and number of institutions but are mostly supervised at the local level by inexperienced authorities. The largest savings and credit cooperatives exceed the size of some of the Class B and C banks and financial institutions. And, there is a governance issue even though they are filling a critical (financial) access gap, according to the IMF.
“They are largely unsupervised and show signs of widespread governance issues, insider abuse, over-lending, and liquidity constraints that have prevented customer access to their deposits,” it said.
In the past, planned regulations faced setbacks because of political influence of cooperative operators, who didn’t want strong laws and regulatory agencies, according to Karki.
The global monetary adviser has called for a formal information sharing agreement with cooperative authorities to ensure a timely flow of data on saving and credit cooperatives.